TaxTMI 
TaxTMI 
2019 (8) TMI 1663
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....f Rs. 5,68,16,900/-. The case was taken up for scrutiny for this Assessment Year and subsequent thereto, the Assessing Officer (AO) made a reference under section 92CA of the Act to the Transfer Pricing Officer (TPO) for determination of the arms length price (ALP) of the international transactions reported by the assessee in the year under consideration. The TPO passed an order under section 92CA of the Act dated 14.01.2016 proposing an adjustment of Rs. 3,37,89,086/- to the international transactions entered into by the assessee in the ITES segment. Thereafter, the AO passed the draft order of assessment under section 143(3) r.w.s. 144C(1) of the Act dated 14.03.2016, wherein the assessee's income was determined at Rs. 9,06,05,986/-; which included the TP adjustment of Rs. 3,37,89,086/-. 2.2 Aggrieved by the draft order of assessment dated 14.03.2016 for Assessment Year 2012-13, the assessee filed its objections thereto before the DRP. The DRP issued its direction thereon under section 144C(5) of the Act vide order dated 07.10.2016, pursuant to which the AO passed the final order of assessment under section 143(3) r.w.s. 144C(1) of the Act dated 25.11.2016 wherein the assessee....
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....ted 19.85 Average PLI 28.11% 4.5 The TPO computed the ALP of the international transactions in the assessee's ITES segment as under:- 4.6 Based on the above computation, the TPO proposed a TP adjustment of Rs. 3,37,89,086/- which was incorporated in the draft order of assessment dated 14.03.2016. Pursuant to the DRP's directions issued on 25.10.2016, the TP adjustment of Rs. 4,18,48,488/- was, inter alia, incorporated in the impugned final order of assessment dated 25.11.2016 for Assessment Year 2012-13. 5.0 Ground Nos.1 to 11 and 15 and 16 5.1 At the outset of proceedings before us, the learned AR of the assessee filed a chart of comparables that the assessee wanted either to be excluded from or included in the final set of comparables and Notes on Arguments. It was submitted by the learned AR that out of the 16 grounds raised on transfer pricing issues, only grounds 12, 13 and 14 related to the plea for exclusion and inclusion of companies from final set of comparables are being pressed; and all other ground Nos. 1 to 11, 15 and 16 (supra) are not being pressed. It is submitted that even in ground No.13, relating to inclusion of companies in the lis....
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....nfotech India (P) Ltd., (2018) 97 taxmann.com 2 (Bangalore - Trib), we direct (1) the exclusion of Infosys BPO Ltd., from the final set of comparables and (2) remand the issue of comparability of the other four companies, namely (i) Universal Print Systems Ltd., (ii) BNR Udyo Ltd., (iii) TCS E-serve Ltd., and (iv) Excel Infoways Ltd., back to the file of the TPO with the same directions rendered by the Co-ordinate Bench in the case of Mobility Infotech India (P) Ltd. We hold and direct accordingly. Consequently, ground No.12 is disposed off as indicated above. 7. Ground No.13 - Plea of assessee for inclusion of Company M/s. Crystal Voxx Ltd., (Crystal) in the set of comparables 7.1 In this regard (supra), the assessee has sought inclusion of the following 4 companies in the final set of comparables:- (i) ICRA Online Ltd., (ii) Techprocess Solutions Ltd., (iii) Crystal Voxx Ltd., (iv) Cameo Corporate Services Ltd., At the outset, the learned AR for the assessee submitted that the assessee is only pressing for the inclusion of Crystal Voxx Ltd., in the final set of comparables and is not pressing for inclusion of of the other three comp....
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....o.13, the Assessee has prayed for inclusion of Crystal Voxx Ltd. as a comparable company. This company was not regarded as comparable company with the Assessee by the DRP for the reasons given in Para 2.15 of its order i.e., for the reason that in the financial results, the Auditors have mentioned that this company was predominantly a Business Process Outsourcing (BPO) company and therefore this company cannot be said to be an ITES company. The learned counsel for the Assessee brought to our notice that in the very same note, the auditors have also mentioned that the only reportable segment was BPO. Therefore this company was a BPO company and the results of the BPO which is the only segment ought to have weighed in the mind of the TPO to include this company as a comparable company. 25. We have considered the submission of the learned counsel for the Assessee and are of the view that the plea raised by the Assessee is correct and the TPO ought to have regarded this company as comparable company because the only reportable segment of this company was BP We direct the TPO to include this company as a comparable company." 7.4.2 Respectfully following the decision of the C....
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....matter, as discussed above, we are of the view that it would be appropriate to restore the matter to the TPO for examination of the point raised by the assessee before the DRP and decide on the comparability of this company, Informed Technologies Ltd., afresh. Needless to add, the AO / TPO shall afford the assessee adequate opportunity of being heard and to put forth details / submissions required in the matter, which shall be duly considered by the AO / TPO before deciding the matter. We hold and direct accordingly. Consequently, ground No.14 of assessee's appeal is allowed for statistical purposes. CORPORATE TAX ISSUES 9. Ground No.17 - Disallowance under section 14A r.w. Rule 8D 9.1 In this ground, the assessee contends that no disallowance under section 14A of the Act r.w. Rule 8D(2)(iii) of the Rules was called for as no expenditure has actually been incurred and debited in the profit and loss account by the assessee. 9.2 We have considered the rival contentions in the matter. On a perusal of the record before us, it is seen that in the course of assessment proceedings, the AO observed that the assessee had made investments in shares yielding exempt dividend income....
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....fore, direct the AO to examine and verify the assessee's claim and allow credit for taxes paid by it as per law. Consequently, ground No.20 of the assessee's appeal is allowed for statistical purposes. 12. In the result, the assessee's appeal for Assessment Year 2012-13 is partly allowed. Order pronounced in the open court on this 14th day of August, 2019. ============= Document 1 The grounds mentioned hereinafter are without prejudice to one another. 1. The learned Assessing Officer ("learned AO") and the learned Transfer Pricing Officer ("learned TPO") grossly erred in making a proposed Transfer Pricing addition of INR 3,37,89,086/- and the Honourable Dispute Resolution Panel ("Hon'ble DRP") further erred in increasing the adjustment amount by INR 80,59,402/- and adjusting the transfer price by INR 4,18,48,488/- of the Appellant's international transactions with its Associated Enterprises ("AES") u/s 92CA of the Income-tax Act, 1961 ("the Act"). 2. The learned AO learned TPO Hon'ble DRP erred in rejecting the Transfer Pricing documentation maintained by the Appellant by invoking provisions of sub-section (3) of 92C of the Act without givin....
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.... companies that ought to have been included as comparable companies: ICRA Online Ltd. • Techprocess Solutions Ltd. Crystal Voxx Ltd. Cameo Corporate Services Ltd. 14. The Hon'ble DRP has further erred in rejecting Informed Technologies India Ltd., which ought to have been included as comparable companies by both the learned TPO and the Assessee. 15. The learned AO/learned TPO/Hon'ble DRP has erred in making the following errors in the computation of working capital adjustment: a. by not considering the fact that the Appellant does not have any working capital risk, therefore, no negative working capital adjustment should be allowed. b. in considering the wrong SBI PLR while computing the working capital adjustment 16. The learned AO/learned TPO/Hon'ble DRP erred in not allowing appropriate adjustment towards to the risk differential between the Appellant vis-à -vis independent comparable companies. Document 3 Corporate Tax Disallowance of expenditure under section 14A of the Act by applying the provisions of Rule 8D of the Income Tax Rules, 1962 ("the Rules") 17. The learned AO has erred in disallowing expendit....
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.... by total operating revenue of Rs.28,40,79,094/-). It is submitted that since details relating to employee cost allowable to specific segments is not available, the same is taken at entity level. (ii) Functionally different The Id AR submits that as per page 69 of its Annual report, this company is engaged in pre-press services and as pre-press activity is connected to the printing industry/process, it is not comparable to call entire services rendered by the assessee. Therefore, it requires to be rejected as a comparable to the assessee since it is functionally different from companies providing ITES. In support of this proposition, the Id AR placed reliance on the decision of the co-ordinate bench of this Tribunal in the case of XL Health Corpn. India (P.) Ltd. v. Asstt. CIT [2018] 91 taxmann.com 310. 6.2 The ld DR for Revenue supported the orders of the authorities below. According to the Id DR, in similar facts and circumstances a co-ordinate bench in the case of CGI Information Systems & Management Consultants (P.) Ltd. v. Asstt. CIT [2018] 94 taxmann.com 97 (Bang. - Trib.) at paras 47 to 52 thereof has remanded back the issue of compa....
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....ture of ITES. The Assessee pointed out that as per the safe harbor rules introduced by the CBDT ITES has been defined as business process outsourcing services provided mainly with the assistance or use of information technology. It was also submitted that this company does not satisfy the definition of ITES as contained in Rule 10TA(e) of the Rules. Since use of information technology is absent in the various services provided by this company, it cannot be regarded as ITES company. The Assessee also submitted that this company fails the employee cost filter. The employee cost filter requires that the employees cost incurred by the company must be more than 25% of its revenue. 48. The TPO at page-20 of his order has dealt with the above objections by observing as follows: (a) (b) (c) Pre-Press BPO unit provides back office support services. This company has four major segments viz., Repro, Label Printing, Offset Printing and Pre press BPO. The employee cost of pre press BPO was more than 25% of the revenue from pre press BPO and therefore the employee cost filter is satisfied in the case of this company. On the service revenue filte....
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....rprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base; (iii) the net profit margin referred to in sub-clause (ii) arising in comparable uncontrolled transactions is adjusted to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market; (iv) the net profit margin realised by the enterprise and referred to in sub-clause (i) is established to be the same as the net profit margin referred to in sub-clause (iii): (v) the net profit margin thus established is then taken into account to arrive at an arm's length price in relation to the international transaction. (2) For the purposes of sub-rule (1), the comparability of an international transaction with an uncontrolled transaction shall be judged with reference to the following, namely:- (a) (b) (c) (d) the specific characteristics of the property transferred or services provided i....
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.... and offset printing segments supplement the functions performed in the Pre-press BPO segment has to be seen. We therefore set aside the order of the DRP in this regard and remand for fresh consideration by the TPO the comparability of this company. In terms of Rule 10B(3) of the rules the profit margins of Pre-Press BPO have to be adjusted taking into account the fact that two other segments supplement the pre-press BPO segment. If such adjustment cannot be reasonably or accurately made then this company has to be excluded from the list of comparable companies. The TPO for this purpose can use his powers u/s.133(6) of the Act to get required details from this company. As far as the argument that this company fails functional comparability, we find that none of the objections raised by the Assessee in this regard about lack of information about allied services performed by the pre-press BPO segment of this company and the break-up of the revenue from such allied services have been dealt with specifically by the TPO or DRP. Since the comparability of this company is being remanded to be TPO for consideration of adjustments as mentioned above, the ....
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....nce on, inter alia, the decision of the co-ordinate bench in the case of (i) CGI Information Systems & Management Consultants (P.) Ltd., (supra). 7.2 Per contra, the ld. DR for revenue supported the orders of the authorities below in including this company in the final set of comparables. 7.3 We have heard the rival contention and perused and carefully considered the material on record; including judicial pronouncement cited. We find that on similar facts, a co-ordinate bench of this Tribunal in the case of CGI Information Systems & Management Consultants (P.) Ltd., (supra) directed that Infosys BPO Ltd., be excluded from the final list of comparables as it is not comparable with a company merely providing ITES, because of its brand value and extraordinary events in the previous years relevant to asst. year 2012-13 viz., the acquisition of an Australia based company which had effect on its profits. Following the aforesaid decision of the co-ordinate bench in the case of CGI Information Systems & Management Consultants (P) Ltd., (supra), we hold and direct that M/s Infosys BPO Ltd., be excluded from the final set of comparables. 8. BNR Udyog Lt....
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....requires examination and we find that this aspect has not been analyzed by either the TPO or the assessee. While it is clear from the TPO's order that if the benchrnarking is done only for the medical transcription segment, then the RPT pertaining to that segment only should be considered. However, since how much of the RPT pertain to the medical transcription segment has not been determined by either the TPO or the assessee, we deem it appropriate and proper to remand the matter of comparability of this company M/s BNR Udyog Ltd., to the file of the TPO for determination of the issue afresh in line with our observation above. Needless to add, the assessee shall be afforded adequate opportunity of being heard in the matter and to file submissions/details in this regard which shall be duly considered by the TPO before deciding the issue We hold and direct accordingly." 8.3.2 Following the above decision of the co-ordinae bench in the case of Indegene (P.) Ltd., (supra) to which one of us is party, and considering the factual matrix involved, that how much RPT pertains to the medical transcription has not been determined by either the TPO OR the as....
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....BPO services with any proper analysis. In this factual matrix of the case, we find that on similar facts, the co-ordinate bench of ITAT-Bangalore in the case of Indegene (P.) Ltd. (supra) has remanded the matter of comparability of this company to the file of the TPO for fresh consideration. In view of the factual matrix of the case on hand, as laid out above and following the decision of the co-ordinate bench in the case of Indegene (P.) Ltd., (supra) which is also rendered on similar facts, we deem it appropriate to remand the matter of the comparability of this company, TCS E-serve Ltd., to the file of the TPO for fresh consideration in the light of our above observations. Needless to add, the TPO shall afford the assessee adequate opportunity of being heard and to file details/submissions in this regard. 10. Excel Infoways Ltd (Seg-IT/BPO) ('Excel') 10.1 The ld AR for the assessee submitted that this company, M/s Excel Infoways Ltd., ('Excel') should be rejected and excluded from the list of comparables for the following reasons:- (i) Fails employee cost filter of 25% The Id AR submitted that in the segmental report, the details relating t....
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....l of the factual material before us, we find that the assessee's contentions that this company, 'Excel' had failed the employee cost filter of 25% has not been Document 14 examined, either by the TPO or admittedly by the assessee, at the segmental level. Similar is the position with regard to volatility of profits/peculiarity of economic circumstances. In this view of the matter, we deem it appropriate to remand the issue of comparability of this company, M/s. Excel Infoways back to the file of the TPO for examination and verification of the assessee's contentions on the issue of abnormality of profits and of failing of the employees cost filter of 25% at segmental level, for which the AO may gather information u/s. 133(6) of the Act. Needless to add, the assessee shall be afforded adequate opportunity of being heard and to file details/submissions required, which shall be duly considered by the TPO before deciding the issue. 11. (i) Accentia Technologies Ltd., ('Accentia') (ii) Jindal Intellicom Ltd., ('Jindal') 11.1 Both these companies 'Accentia' and 'Jindal' were selected by the assessee in its TP study. In proceedings u/s. 92CA of the Act,....